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Several years ago I purchased four single family houses on an installment contract from an elderly gentleman and his wife . The couple had lived in my town all their life and had decided to retire to Florida . Not wanting to be burdened with continuing to manage their rental properties , they decided to sell . However , selling for all cash would have generated a huge capital gains burden ( their houses were fully depreciated ). The solution was to sell on an installment basis whereby only the principal payments would be reported as gain .
I suggested to the retiring couple that they put their properties into separate Land Trusts and sell me the beneficial interest on a contract . This method of selling would allow the title to the property to stay in their trust ’ s name ( with them controlling the Beneficial Interest ) until I paid them in full . If I defaulted , they would be able to repossess the Assignment of Beneficial Interest . . . and not have to foreclose .
Being stuck in their ways of doing things , the old couple said they did not want to sell using a Land Trust but wanted to record a deed in my name ( actually I had them record the deed in the name of my Land Trust Trustee ) and record a mortgage on each property for the amount of debt I would owe
The Old Man and His House them . Not wanting to kill the deal , I agreed to do it their way .
Buying on an installment contract has its advantages . I paid the couple a small down payment and made them monthly payments amortized over a 25year period . The interest rate they charged me was less than what the banks would have charged and more than they could receive in a certificate of deposit . Everybody wins when you cut the banker out of the transaction .
I rented the houses out to families and made my payments to the elderly couple for several years . The favorable terms I received on the contract allowed me to have a monthly positive cash flow on all four properties . Life was great !